Public Regulation of Land and the 5th Amendment · Web viewTitle Public Regulation of Land and the 5th Amendment Takings Clause Author Student Last modified by Dave Nicholson Created

Property I Outline AT

Public Regulation of Land and the 5th Amendment Takings ClauseThe Due Process Clause of the 14th states that the government cannot deprive a person of life, liberty, or property without due process of law. The takings clause states that private property cannot be taken for public use without just compensation.

1. Virtually Per Se (Nearly Automatic) Takingsa. Permanent Physical Occupation

i. The occupation chops through the entire bundle of rights- the power to possess, use, EXCLUDE, and dispose of the property.

ii. All occupations count, even very small ones (Loretto v. Teleprompter). iii. This rule does NOT govern regulations that do not involve intrusion by a

third party. Ex. smoke detectors in a home required by building codes.iv. Exception: A regulation that appears to be a permanent physical

occupation may be allowed if:1. it is shown that there is a “close fit” or “close nexus” between

the regulation and the purpose of the regulation.A. Nollan v. Coastal Commission: The purpose of the

regulation was to increase the view of and access to the beach but the lateral easement did not solve the problems of psychological barriers to viewing or access to the beach, no close fit, regulation is a taking.

2. and there is a “rough proportionality” between the extent of the taking and the regulatory benefit. The government cannot take a mile when an inch will do (Dolan v. Tigard).

b. Destruction of all Economically Beneficial Use (Lucas v. Coastal CounciI unless justified as preventing a nuisance). The prohibited activity must be part of the landowner’s property rights in the first place.

c. Government requires a conveyance of property.2. General Rule (when no per se taking): Multi-factor Test

a. Economic Impact on Investment-Backed Expectations: the court must consider and protect the investors who acquired the land because of its value. Is the ordinance or regulation hindering the expectations the investors had when they purchased the land? The economic loss should not be imposed on the land owner alone.

b. Physical Invasion: If yes then to what degree?c. Broader Public Purpose: Almost always is, Professor Crump thinks this factor

helps prove that there is a taking instead of supporting the argument against.d. Comprehensiveness: Is the regulation applied equally throughout the city? Is

there reciprocity of advantage (and disadvantage), i.e. are the people that are adversely affected by the regulation benefiting from it also? If the landowner obtains no advantage possibly a taking.

e. Noxious Uses: the government can protect the public from harm and prevent noxious uses by exercising their police power which is non-compensable, NOT a taking (Lucas v. Coastal Council).

f. Is the land being acquired for government use?3. Utility rates, rent control: Can price regulation become a taking? What if regulation

sets rates so low that a profit cannot be made? If the property cannot be used for any other use, has the city taken the property?

4. Remedies for Takings, Just Compensationa. Fair Market Value: what a buyer would pay in cash to a willing seller at the time

of the taking. Takes into account improvements to land and possible future uses.i. Most Objective Standardii. Battle of the Appraisers?iii. Does not take into account moving costs

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b. Land is Unique or No Market for the Property, Value Cannot be Determined: valued at replacement cost or some other just and equitable method. Ex. Landfill, school, etc.

c. Temporary Taking: a property owner is entitled to losses suffered for the temporary taking occurring during the period in which the law was in effect (First English Evangelical Lutheran Church).

i. Before this ruling, the government had the choice of paying compensation or rescinding the act.

ii. This will deter regulations with the weakest purpose and the highest possible damages.

Concurrent Ownership of Land1. Fee Simple Absolute: absolute ownership, potentially infinite duration, no limitations on

its inheritability. a. “to A in fee simple” b. “to A and his heirs in fee simple” land passes to A’s heirs. A’s heir has no

present interest, A can convey to B during his lifetime.2. Life estate: or “to A and B and B’s heirs” creates a life estate only for A, not an estate in

fee simple. OR “to A for life and then to B and B’s heirs” creates life estate and remainder in fee.

3. Divided Estate: “to A and heirs, but ½ of the mineral interest to B and heirs.”4. Tenancy In Common: “O to A and B and heirs”

a. Undivided ownershipb. Each cotenants interest can be conveyed, willed, inherited, or burdened with

secured debt.c. Tenants in common are treated in law as a group of owners. No cotenant has

legal claim on the others for time and expense spent in making improvements. However, if a profit is made, the cotenants have a claim to share.

d. Cotenant can transfer his undivided interest without the consent of other cotenants.

e. No tenant can change or alter common property to the injury of his cotenants without their consent.

f. Cannot commit Waste (≡ destruction, material alteration, or deterioration of the land or improvements by anyone rightfully in possession without consent of all tenants).

i. Remedy: liable for damages, possible injunctive relief when the injury is material, continuing, and not adequately remedied in damages.

g. Cannot Exclude: A cotenant cannot appropriate the entire estate or unilaterally partition the property by appropriating a specific portion of the property.

5. Joint Tenancy: “as joint tenants with rights of survivorship and not as tenants in common

a. Meaning: Property is owned in entirety by survivor.i. Neither tenant’s will disposes of the joint tenancy. ii. Can convey (deed) interest during life, severs the JT and converts it

to a TC.iii. Mortgages do not sever the JT. Joint tenancy is not severed by the

execution of a mortgage by one joint tenant. The mortgage does not survive the mortgagor’s death because the joint tenant’s property right to which the lien is attached extinguishes upon death (Harms v. Sprague).

iv. Williams v. Studstill: JT, unities abolished, right of survivorship can still be created. However, no doctrine of severance.

v. Similar to life tenancy with remainder to the survivor.b. Presumption against JTWROS and in favor of TC. O to A and B and heirs as

joint tenants presumption that TC is formed and property is inheritable.

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c. Must have 4 unities, JT must be created:i. at the same time,ii. by the same title,iii. with the same possession, andiv. with the same interests.

6. Tenancy by the Entirety: JT that is not severable except by divorce. Neither spouse can sell the property without the consent of the other.

7. TOD Statutes: No need to go through probate.8. Condominiums: the owner has fee simple title to a single unit with an undivided interest

in the common elements. Condominiums may be created by K if the following conditions are met.

a. Ownership of part of the building as an interest in land.b. Restraint against

i. the partition of the commonly owned land and ii. the partition of the buildingiii. separation of the share in the commonly owned property from the

separately owned unitc. Provision for the use, management, and maintenance of the commonly owned

property9. UMPA: allows for equitable distribution of Marital Property.

a. Three categories of propertyi. Individual Property: owned prior to marriage or acquired by one party

as a gift or inheritance. Property acquired through exchange for or with the proceeds of the spouse’s individual property remains individual property.

A. Proceeds or income from individual property? Possibly separate, possibly marital property.

ii. Marital Property: all property acquired by a couple during the marriage, including income earned on marital and individual property.

iii. Mixed Property: marital and individual property that is commingled. Mixed property is marital property unless it can be traced as individual property.

A. If property is classified as individual property and marital funds are used to maintain the property or pay down debt, then the other spouse has a right to reimbursement and is entitled to the money spent to pay down the debt, etc.

B. If the property is characterized as community property, then the other spouse is entitled to half of the property.

C. This could result in a huge difference if the property is stock that has increased dramatically in value.

10. Theory of Community Property: Earnings in a marriage belong to the marriage. a. Advanced degrees are not considered divisible, marital property but the court can

consider education and increased earning capacity when awarding alimony, In re Graham.

b. Argument: the most valuable asset acquired is increased earning capacity. The law recognizes future earning capacity as an asset whose wrongful deprivation of is compensable in wrongful death suits, loss of consortium, etc.

c. Valuation:i. Capitalization of earningsii. Multiple of earningsiii. Market Valueiv. Historical cost or book valuev. Replacement cost

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Trusts: A fiduciary relationship in which one person (trustee) is the holder of the title to property (trust property) subject to an equitable obligation to keep or use the property for the benefit of another (beneficiary).

1. Advantages a trust has over a common law conveyance:a. the trustee ensures that the wealth is available for a longer period of timeb. the trustee has the power to sell and convert the corpus of the trust into more

lucrative forms of wealth2. Disadvantage:

a. High duty that is easily violated. b. Trusts are expensive to set up and administer.

RECORDING SYSTEM for land titles, security against multiple conveyances.1. Race Statute: first to record wins. Problems with fraud and unfair if 2nd had notice.2. Notice Statute: permits a later purchaser to prevail in a dispute with a previous

purchaser even if the later purchaser failed to record (defeats the goal of the recording acts to encourage the recording of land transactions). Protects the 2nd buyer but subjectively relies on 2nd’s lack of notice or knowledge.

3. Race-Notice: a subsequent purchaser must take without notice and must record first to prevail with a previous purchaser. First to record wins unless it is 2nd and he had notice.

4. Example: O Fred 1st BFP; O Sam 2nd BFP; Fred 1st Records; Sam 2nd Recordsa. Who wins?

i. Pure Race: Fred 1st winsii. Notice: Sam 2nd wins because Sam had no notice, Fred had not

recorded yet.iii. Race-Notice: Fred 1st wins because governed by race unless 2nd had

notice and 2nd didn’t have notice.iv. If 1st did not pay value then he loses in all three statutes.

5. Common Law: between two conflicting interests, if both legal and equitable, the earlier created interest would prevail.

6. Shelter Rule: A B and B C, C has good title if B does even if C had notice of a defect in B’s title. C is sheltered by B’s good title.

7. Later purchasers are protected against earlier purchasers who are outside the chain (Palamarg).

8. When documents do not comply with recording requirements, they have no standing of record and do not give constructive notice to subsequent purchasers.

a. Acknowledgment: Swear that this instrument is what it says it is. All recorded documents must be acknowledged (witnessed signing by someone of authority)

b. Jurat: Swear that what is said is true.

Real Estate TransactionsSteps:

1. Finding the deal (broker, etc.)2. Negotiations3. Purchase K (EMK)4. Financing Conditions5. Title Conditions6. Other Conditions7. Core Documents: Note, Deed, Deed of Trust or Mortgage,

The K for the Sale of Land (EMK)1. Brokers:

a. Earn their commission when they i. Produce a purchaser ready, willing, and able to buy.

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ii. The purchaser enters into a binding K with the owner, andiii. the purchaser completes the transaction by closing the title.iv. The seller must pay the commission if the sale was not completed due to

his fault.b. Agreements:

i. Exclusive Agency: only broker can sell the property, but seller can sell also. No commission for the broker if the seller sells.

ii. Exclusive Right to Sell: if the house sells (through anyone’s effort), then the broker gets the commission.

iii. Non-exclusive Agency: can hire several brokers.iv. MLS: brokers’ duty to use rsbl efforts to sell property.

2. Purchases, EMKa. Statute of Frauds: K for the sale of land must be in writing and signed by the

party being charged. Might require legal description of the property.b. Essential Terms:

i. Price: if none is stated, the court may infer an agreement to pay a rsbl price based on the circumstances.

ii. Partiesiii. Terms and Conditions:

A. Financing: offer to purchase contingent on the buyer obtaining financing. If the condition is vague and allows the buyer to obtain satisfactory terms, then the buyer must act in good faith in obtaining the loan.

B. Time is of the Essence: if one party does not tender performance by the specified date or takes an unrsbl amount of time, the other party is excused from performance.

c. Oral K and Part Performance: i. takes the K out of the Statute of Frauds if the buyer

A. Pays all or part of the purchase price,B. enters into possession of the land, and C. makes improvements.

ii. Equitable doctrine, can only sue for specific performance, not money damages.

d. Recording, passage of equitable title: Once the K is signed, the seller still has title. The buyer has the beneficial or equitable title. If acknowledged can record.

Title:1. Marketable Title: NOT perfect title, rsbly free from doubt, a prudent purchaser would

accept, free from defects that would interfere with the sale or market value, no rsbl probability that the buyer will be subjected to a lawsuit. Marketability is concerned with the right to unencumbered ownership and possession, NOT with legal public regulation of the use of the property.

a. Good Record Title (≡ unencumbered fee simple): conveyance by a sovereign state to original grantee, transfers on record to the seller. No recorded encumbrances, such as mortgages or easements.

i. Limitations on how far back to search.b. Adverse Possession: Exclusive, open, notorious, and continuous possession.

Must be hostile, permission by the owner NOT adverse possession.i. Adverse possessor has limitation title (unlimited by Statute of

Limitations and as good as record title).ii. Quiet Title action to eliminate record owner’s rights. iii. Conveyance of the record title to a BFP will not extinguish a title acquired

by adverse possession (Mugaas v. Smith).iv. Can be used to cure defects.

c. Defects:

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i. OK: Zoning and visible servitudes, i.e. utility easements.ii. NOT OK: Prior defects in chain of title, incorrect land description,

improper recordation. iii. Sometimes (buyer can waive): mortgages (not an encumbrance if seller

pays off before closing), liens, covenants, easements.2. Good and Indefeasible Title (+ insurance): defensible in court

a. TEXAS: seller to furnish a title insurance policy with only certain encumbrances and to convey “good and indefeasible” title, which means no one can defeat in court (NOT no one would challenge in court).

3. Title Insurance: a. Purpose

i. As insuranceA. Indemnity (pays loss) within limits of coverageB. Defense of title in court

ii. Really for sufficient indication that a purchase can be made with confidence in the status of the title.

iii. The lender (mortgagee) must be satisfied. If there are many encumbrances lender will not finance.

b. What is covered?i. Limited by the policy limits, usually the purchase price of the property,

does not insure improvements to the land.ii. Titleiii. Access to propertyiv. Does not cover prescriptive easements, only recorded encumbrances.v. Must defend the title.

c. Title Curing:i. Quitclaim deedii. Affidavits saying that an encumbrance does not exist or they do not have

an interest in the property.d. Reliance on the title:

i. Replaces title search by lawyerii. The title insurer has a tract system (instead of grantor-grantee index)iii. Extra-contractual liability (greater than policy limits) for negligently

searching the title? Title Co. says NO.A. NOT protective of later improvements, only liable for purchase

price.e. Duty of the Title Insurance Co: Is it negligence to miss recorded liens (extra-K

liability)?i. As an Insurer: Not liable to the purchaser because the search was not

done for them. The duty of the insurer is to pay indemnity and to defend the purchaser.

ii. As an Abstractor: The π thinks that the Title Co. is a Title Abstractor. Abstractors have a duty to the purchaser because they furnish information to guide the purchaser. The insurer is an abstractor because they know that everyone justifiably relies on their title search, can sue for negligent misrepresentation. Elements:

A. Pecuniary interestB. Supplies false info for guidance of othersC. Fails to exercise rsbl care in obtaining or communicating infoD. Liable for pecuniary losses for justifiable reliance.

Defects in the Premises1. Caveat Emptor: seller does not have to disclose defects unless the defect was

fraudulently concealed. They buyer can inspect the premises.

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2. Duty to Disclose: seller must disclose all known defects to the buyer. Possibly off-site defects also, ex. noisy neighbor.

3. The Problem: residential structure-is the structure sound, is the plumbing sound? Can the property be used the way the buyer plans?, etc. Commercial properties have the same issues.

4. Difficulty-some defects might not be known, even with inspection. Ex. Mold5. Possibilities

a. Defect known to the seller and concealed.b. Known, but not actively concealed: not disclosed b/c the buyer did not inquire.c. Latent and undiscoverable.d. Latent and discoverable (but the buyer did not discover).e. Defect becomes apparent after the sale. Difficult to determine when the defect

occurred. The buyer thinks something wrong with the roof at sale; the seller says defect occurred after the sale.

6. Possible targets of litigation: seller, previous seller, builder, developer, inspector, broker, lender, title co., manuf. of parts, architect, engineer.

7. Statutes of repose covering architects and engineers- exempt from liability after a certain time.

Possible Claims against Targets1. Negligence2. Negligent Misrepresentation3. Misrepresentation (fraud), elements:

a. Actual v. Constructive Notice: seller knewb. Affirmative misrepresentation or nondisclosure: seller intends for the buyer to

rely on his misrepresentation.c. Statutes: buyer has a right to rely, also possibly contractual right.d. State of mind required- intent, reckless, less?

4. Breach of K (Warranty)a. Express written/oral (that the building is sound, sellers want to sell as is). Sellers

or builders want a merger clause so no oral warranties.i. “Puffing” (salesmanship- this is a good, sound property, etc.) is NOT a

warrantyb. Implied Warranty of habitability. Meaning, unliveable. Cannot disclaim this

warranty.5. Claims based on consumer legislation: statutorily implied warranties6. Other possible claims: Real estate laws, securities laws, promissory estoppel, ad

infinitum.

Risk of Loss: who is at risk of loss if the property is damaged by fire, etc. before closing? 1. Agreed upon in the K.2. Buyer has risk of loss (even if seller in possession): equitable conversion, buyer owns

the land, seller only has security interest.a. Entitled to decrease in purchase price or insurance proceeds.

3. Seller has risk of loss: a. Buyer can rescind if

i. the loss is substantial and ii. the loss is an important part of the subject matter.

b. Damage is insubstantial buyer gets abatement in purchase price4. Party in possession has risk of loss.

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The Closing: deed executed by the seller, deed and mortgage records, check given to seller...

Deeds: transfer an interest in land, conveys (marketable, etc.) title.1. Statute of Frauds: must be signed by the grantor. The grantee is bound by covenants,

etc. because he accepts the deed. Must contain a legal description of the land.2. Covenants of Title, contained in the deed:

a. General Warranty Deed “against every person”: the seller warrants all defects in title, including those created by previous owners, to sellers and all successors.

i. Only liable up to the amount of the consideration received.b. Special Warranty Deed “by, through, and under me but not otherwise”: The

seller is only liable for defects in the title that they personally created.c. Quit-claim Deed “right, title, and interest”: The seller only conveys what he

owns without any warranty.d. Conveyance w/o Warranty: resembles warranty deed with warranty omitted.e. Warranty deeds usually contains 6 covenants:

i. Covenant of Seisin: grantor owns the estate or interest he is conveying.ii. Covenant of Right to Convey: grantor has the power to make the

conveyance, he has title or he is acting as trustee or agent for the owner.iii. Covenant Against Encumbrances: no easements, covenants,

mortgages, liens, or other encumbrances on the property.iv. Covenant of Quiet Enjoyment: grantee will not be disturbed in

possession or enjoyment of the property by a 3rd party’s assertion of superior title.

v. Covenant of Warranty: grantor will defend any lawful claims existing at the date of conveyance and will compensate the grantee for losses sustained by the assertion of superior title (same as Quiet Enjoyment).

vi. Covenant of Further Assurances: grantor will perform whatever acts are rsbly necessary to perfect the purchaser’s title, if it is imperfect (this is often omitted from deeds).

f. Breach of Covenants3. Elements of the Deed

a. Location and Salutationb. Grantorc. Consideration: usually “$10 and other valuable consideration” to keep the

purchase price secret.d. Granting Clause: “I give, grant, sell, convey, etc...”e. Grantee: a baron sole, etc.f. LEGAL Description of Land Conveyed:

i. Markers/monumentsii. Courses (metes and bounds or measurements and boundaries)iii. Distancesiv. Quantityv. Order of consultation:

A. (Markers or Monuments) Original survey monuments prevail over

B. natural monuments, C. which prevail over artificial monuments, D. mapsE. courses (directions and angles)F. distancesG. name (ex. Black Acre)H. quantity (ex. 300 acres)

g. Habendum Clause: “to have and to hold,” all rights belonging to grantee (and their heirs and assigns forever).

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i. Trust: “to have and to hold to the use of B for life, then to the use of B’s children.”

h. Warranty Clause: GWD, SWD, Quitclaimi. Encumbrances: subject to all recorded conditions, restrictions, and

encumbrances, including current real estate taxes (must include pro-rated taxes, must list all easements, if not, then warranted property that is not owned)

j. Acknowledgement (Notarized), needed for recordation.k. Vendor’s Lien: a prudent lender would want this so the lien can be recorded

even though it arises as an operation of law. If it is not recorded, then the property can be bought by a BFP who will have title over the security interest.

l. Corporate Resolution: careful grantee might want this. Evidence of an authorizing resolution when the grantor is not an individual.

4. Claims: defects in the condition of the landa. Negligenceb. Negligent Misrepresentationc. Misrepresentation and Fraudd. Breach of K

i. Express warrantiesii. Implied warranty of habitability

e. Consumer Legislation

Mortgage: (east of the Mississippi) buyer borrows money from lender to be paid back with interest over time. The borrower gives the lender a mortgage on the property to secure the debt and if the debt is not paid, the lender will foreclose on the mortgage.

1. Promissory Note: document that evidences the debt. “I promise to pay the lender $10K with interest....” The note is a personal obligation on the buyer and the lender can sue on the not if not paid.

2. Mortgage: the agreement that the land will be sold if the debt is not paid and the lender will be reimbursed from the proceeds of the sale. The mortgage gives the lender security. The mortgage will be recorded to give the lender priority over subsequent purchasers of the land.

3. Title Theory: legal title is transferred, joint tenancy is severed and the property is vested to the mortgagee.

4. Lien Theory: mortgagee has a lien on the property, security interest only, legal title remains with the mortgagor. Lien extinguishes upon death of the mortgagor, does not severe a joint tenancy.

5. Purchase Money Mortgage:a. Arises as a matter of law when something is sold on credit.b. Automatic lien on what is bought.c. Not recordable because not written anywhere.d. How to record: warranty deed with vendor’s lien.e. In not recorded and the property is sold, might extinguish the purchase money

mortgage.f. Malpractice case: attorney failed to insert vendor’s lien in the deed, vendor’s lien

unrecorded, deed of trust proved unforeclosable for technical reasons and the property was lost to a BFP.

6. RULE: in equity, a grantor may show that a deed was intended to be security for the payment of a debt and is in actuality a mortgage. For a deed to be considered a Mortgage

a. Vendor must be indebted to the purchaser at the time of sale and b. continues to be indebted after the salec. Right of reconveyance upon payment of the debt.

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Deed of Trust (south and west): NOT a Deed and NOT a trust. The borrower gives a “deed” to a “3rd party trustee” (just hired party to act in the interests of the bank).

1. (Equitable title?) NO legal title is transferred; ONLY security interest transferred to secure the debt.

2. Private Sale Foreclosure: cheaper for the lender, ultimately cheaper for the buyer also.

Merger Clause: an entirety clause which states that this is the entire agreement. There are no other implied or oral agreements and this K supercedes any prior communications. All terms are included.

1. DO NOT use a merger clause if there are a lot of open terms or oral warranties, etc.2. Sign all Documents Clause contradicts a merger clause. A new document can be

signed if all terms are not included.

Cannot ensure that a K is not formed even if it is stated that “this is not a K.” CAN do the following Status Letter:

1. We are negotiating the following terms.2. Part 1 is not a K. Part 2 is a K. Both parties agree not to claim that Part 1 is not a K.3. Breach = claiming that that Part 1 is a K, damages, etc.

Condition of the PremisesReal Estate Financing

1. Lender Concerns:a. Loan is secure, it will be repaid, if not, there is a remedy. b. Rate of Interest

i. Usury Laws: limits the amount of interest that can be charged.ii. Adjustable or Fixed Rate Interest

A. Adjustable: float with indexB. Fixed Rate: Inflation is a problem. If the lender lends at 8% and

interest rates increase to 15%, then the lenders must repay the funds at 15% while making 8%. Fixed rate loans are usually higher rates.

c. Saleability of the Note, can the lender resell or refinance the note? Documents must conform before the note can be sold on the secondary market.

i. Secondary Mortgages:A. Government, investors, re-buyersB. Advantages: Nationwide credit, risk spreading, availability of

credit.C. Mortgage must be a negotiable instrument, disaster if it is not

transferable.2. Credit Quartet:

a. Amount borrowed (principle)b. Length of repayment (term)c. Interest Rated. Method of payment (amortization). Fixed graduated payment or floating

payments?3. Adjusting the credit quartet: If the buyer is high risk, the lender can require a shorter

term, a floating interest rate, and a high down payment, giving the lender more security.4. Terms of the Loan

a. Fixed Rateb. Adjustable or Variable Rate Mortgages: rate varies (yearly or so) with the

Treasury Bill index. Possible annual cap and absolute cap on rate.c. Balloon/Rollover Mortgage: fixed rate for a short term, refinance at the end of the

period.

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d. Graduated Payment Mortgage: payments go up over time, buyer can buy a more expensive house with the expectation that his income will increase over time.

5. Alternative amortizations:a. Standard level payment: but payor’s ability to pay changes over time as his

income increases. Also, lenders borrow short and lend long. Residential loans last 20-30 years, the banks may end up paying higher interest rates than the rate charged to the buyer.

b. Solution: i. Longer borrowing by lenders.ii. Short term financing with balloon payment that is usually refinanced.iii. Due on sale clauses.iv. Adjustable interest rate.

6. Highly leveraged transaction: high loan-to-value ratio (low down payment). Investors want this so that they get a greater return on their investment.

7. RE loans are risky and are secured by property. Risks:a. Credit Risks: the borrow will not repay the loan and the value of the property

will not be high enough to recoup the investment. Solution:i. Lower loan to value ratio (higher down payment)ii. (PMI) mortgage insurance for loan defaultiii. multiple obligors or rich uncle financing (co-signor)iv. investigate the mortgagors

b. Interest Rate Risks: unpredictable cost of money solution: adjustable rate mortgages, due on sale clause

8. Elements of the Loan:a. Promissory Note: written promise to repay the money borrowed. The note has

terms concerning late charges, pre-payment, rights of the lender upon default, notice requirements, and is secured by the mortgage or deed of trust.

i. Negotiable Instrument, must be carefully writtenb. Mortgage or Deed of Trust: conveyance of property interest to the lender to

secure the borrower’s performance. i. Deed of Trust Conveys security interest, equitable title only, NOT

legal title to the trustee or mortgagee. The property is NOT conveyed.9. Wraparound Mortgage: seller keeps old mortgage and buyer pays seller on new

wraparound mortgage.a. Selling home, interest rates ↑, and mortgage is assumable.b. Seller keeps the old mortgage, the buyer pays the ↑ interest rate, seller makes

money on the difference in interest rates (owner finances).c. Problems:

i. Default by buyerii. Seller doesn’t pay old mortgage off even though buyer pays

d. Multiple wraps10. Foreclosure when mortgagor defaults on the loan

a. Judicial Foreclosure (In non deed of trust states)i. Sale in a court actionii. Available in every jurisdictioniii. Required when

A. the mortgage fails to create the power of sale, or B. there are no references to the power of sale, orC. absolute deed, does not contain the power of sale, orD. serious lien priority dispute.

iv. Disadvantages: Very expensive, greater delay to the lender, law suit. These costs are silently incorporated into the cost of the loan.

v. Traditional mortgages are judicially foreclosable only.b. Power of Sale Foreclosure (Deed of Trust)

i. Notice requirements (less rigorous than for Judicial Foreclosure)

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ii. Public Saleiii. Cheaper and more efficient than judicial foreclosureiv. Title may be less stable:

A. No right to exercise power of sale (no default) sale void.B. Voidable: bare legal title passes to the purchaser subject to the

rights of redemption.v. If the buyer is not in default, he can file a petition to enjoin foreclosure.

c. Deficiency Judgment: against original buyer/borrower if proceeds from the sale are insufficient.

d. Right of Redemption: any time within one year after sale, purchaser is not entitled to possession during the redemption period.

11. Lender Liabilities: a. NO title claims: bank will win b/c title search was for benefit of the bank, not the

borrower. Lender has no right to rely on the bank’s attorney (even though they pay for his services!) because there is a potential conflict of interest.

b. Wrongful foreclosurec. Not lending more, calling the note (breach of K), fraudd. Interferencee. Lending too much: lender knew the buyer couldn’t afford, etc. but lent $ f. Economic Duress: Farah case, holds lender liable for threatening to foreclose

before deciding to foreclose, fraud.12. Disclosures Required

a. Regulation Z (Truth in Lending) Statement: summarizes the cost of the loan so the buyer can shop for credit.

b. Costs and Benefits of Disclosure:i. Failure to comply can create lender liabilities disproportionate to the

resulting harm. Good faith error is not generally a defense.ii. Difficult to compute components, must gather information from many

different parties.iii. Effort is reflected in increased costs of the loan.iv. More documents, less importance of each document, more opportunity

for lender to make a mistake and incur liability disproportionate to the benefit of the disclosure.

SERVITUDES1. Servitude ≡ rights and obligations in land for benefit of another or another’s property

because of geographic or economic efficiency.2. Types of Servitudes:

a. Old:i. Profit: right to sever and take profits (produce or substance) of the land of

another.ii. License: right to use other’s property, revocable at will.iii. Easement: an interest in another’s land, not subject to the will of the

possessor of the land.iv. Covenants (created by K, ex. deed restrictions)v. Equitable Servitude (mixed bag)

b. Moderni. Affirmative Use: gives person right to go onto the land.ii. Negative Obligation: restriction of another owner.iii. Affirmative Obligation: homeowner’s dues.

3. Creation of Servitudes:a. Express K: deeds, wills, etc.

i. Statute of Frauds appliesii. Must be recorded to bind future parties

b. Implied K (pre-existing use)i. Apparent Continuous Use. Requirements:

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A. Unity of title and subsequent separationB. Continuous use before separation of landC. Easement must be reasonably necessary to the proper

enjoyment of the dominant estate.ii. Easement by way of Necessity: does not rest on pre-existing use but on

the need for a way across the premises. Arises when conveyed land is entirely surrounded by other land. Requirements:

A. The properties were once part of a larger tract under one ownership.

B. A necessity existed at the time of severance.C. Present necessity for easement is great.

c. Necessityd. Prescriptive easement (created by use): continuous, open and notorious, but

NOT exclusive. Can use property only, cannot oust others.e. Limited permission or acquiescencef. Equity

4. Termination of Servitudesa. Contractual End

i. Conveyance backii. K terms for termination (deed covenants run for 99 years)iii. Release of easementiv. Illegality (racially restrictive covenants)v. All other K doctrines apply

b. Parties Conducti. Abandonmentii. Reverse prescription: Someone else takes over the property, uses for

something else.iii. Reverse necessity: necessity is harmful to the dominant estate, equity

terminates.iv. Merger: one party acquires all relevant estates.

c. 3rd Party can end servitudei. Servitude created after mortgage, mortgage forecloses, security interest

is not impaired by the servitude because preexists.ii. Eminent domainiii. Conveyance to BFP

5. Does it Run with the Land?a. Intent (if by K) that servitude runs with the land, not just personally binding.b. Touch and Concern: must be about the land, there must be a mutual benefit at

the time the covenant was set up.c. Privity

i. Horizontal: relationship between original promisor and promiseA. lessor/lesseeB. Mutual: between neighboring land owners in connection with a

transfer of interest.C. Successive: between original owner a buyer of a part (ex. deed

restriction by developer).ii. Vertical: parties enforcing or being enforced against must be successors

of original parties who set up servitude. Adverse possession ends vertical privity.

6. Radical individualism vs. communitarianism

LAWYERING SKILLS6 Elements of a Contract

1. Identify the Parties:a. Can they perform the K?

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b. Are they legally able to enter the K?c. If they breach, do they have the resources to remedy the breach, are they

solvent?2. Formation and Maturation of Obligation: Requirements before obligations are binding.

a. Is there an offer and an acceptance? b. Are there any misunderstandings? c. Is the other party bound to perform? d. What constitutes an acceptance? e. Are there any contingencies, or should there be?f. Ex. “buyer will apply within 10 days for financing and unless he obtains a 30-yr

loan at 7½ %, no obligation. Sale price is $200K cash.i. Obligation of the Buyer: to pay $200K cash (do not have to get a loan).ii. Requirements before obligation is binding (contingencies):

1. Apply and obtain loan.2. Divorce decree within one year.

g. In a RE K, do the subjective conditions allow the buyer to terminate the K with no obligations, giving the buyer a “free option” or a “free look?”

i. “satisfactory” survey conditions or heating and AC conditions, subject to “satisfactory” financing conditions, approval of title by the buyer’s attorney...

3. Obligations of the Client (when all conditions are met): a. Protect the client from exaggerated expectancies of the opposing party.b. Want terms favorable to the client, neither too vague or too specific.

4. Obligations of the Opposing Party: a. Are they clear, do they have requirements?

5. Breach and Remedies: a. What constitutes a breach?b. What remedies are available?

6. Termination: a. When are the obligations fulfilled and the K ended?b. What happens at the end of the K?c. Does the K terminate upon breach?

Example:Conveyance Problem No. 2

1. Parties: Do the authors own all rights to the book? Should both partners of the publishing company be required to sign the contract? Can the publishing company compensate the authors in the event of a breach?

2. Formation and Maturation of Obligation: What is the timeline for publication? What if the book is not finished? What if the publisher never publishes the book? Any contingencies to provide for these situations?

3. Obligations of the Client: The authors are not obligated to finish the book. There are no provisions for remedies (authors expectation interests were royalties based on book sales).

4. Obligations of the Opposing Party: The obligations of the opposing party are unclear; the contract does not obligate the Publishing Co. to publish the book. Could it be argued that this contract does not have consideration? Then there would be no contract and therefore does not help the authors.

5. Breach/Remedies: What constitutes a breach?6. Termination: When is the contract over?

LAWYERING CAPABILITIES1. Capabilities Needed:

a. Rapport Building with clients, other lawyers, witnesses, and courthouse personnel. Attorney should be pleasant, personable, kind, and considerate.

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b. Advice and Consultation: teach client, outline strategy and inform the client of problems, leave the final decision to the client.

i. Interviewing Techniques: begin with non-threatening questions so the client feels relaxed and to develop rapport. Then move on to more difficult questions. Also, LISTEN to what the client wants.

c. Document Preparation: This is important but takes up very little of the attorney’s time. Usually, pre-printed forms, canned documents are used. The documents have evolved and been perfected very efficient. This is better than having a new attorney draft a document for the first time.

d. Negotiation: This is the most highly developed skill. Lawyers may appear dishonest to laymen. Attorneys often role-play (play dumb), attempt to intimidate the other party, or apply pressure to the other party. See below.

e. Courthouse Activities are clerical in nature. There is very little use of the lawyer’s professional skills. For example, checking on SOP, discussing clothes for a client with the bailiff, trial is rare.

f. CLE: Formal programs are a small portion of CLE. CLE occurs daily when researching for cases or discussing the law with other attorneys.

g. Practice Management: Each attorney has his own style of management (as opposed to the previous 6 capabilities). Some attorneys do not trust their secretaries to do anything buy type, the attorneys even proof read the secretary’s work. Other attorneys rely on their secretaries for everything.

2. Client and Public Relations:a. Effort Orientation: effort very important to the client

i. Projecting Effort through actions:A. Repeat the client’s question demonstrating that you understand

what the client is saying and what he wants, then explain what the client needs.

B. Avoid belittling comments, NEVER say “you don’t need a lawyer for this,” makes the client look foolish.

C. Express concernD. Keep a clear desk, this gives the impression of undivided

attention.E. Turn the phone off, do not answer phone calls during a mtg.F. Do something for the client NOW, dictate a letter, secure an

address, call a potential witness, etc.ii. Project effort through paper:

A. cc the client on all important papers relating to the case, briefs, motions, letters received, pleadings, etc.

B. This also demonstrates honesty, not trying to hide anything.C. BUT, must be careful, don’t want to send the client poorly

presented documents with spelling and grammar mistakes.D. Bills:

1. Delineate work don’t, explain what was being discussed, briefed, or researched.

2. Use small billing paper for visual acceptance. Filling a small paper looks like a lot of work was done.

3. Use verbs, gives the impression of action.4. Possibly do not include # of hours worked but state what

services were provided.iii. Accepting Additional Responsibility

A. Assume additional or continuing responsibility, give additional (not asked for) advice.

B. Ex. send changes in code or regulations or important case decisions to clients if it effects them.

C. Mention need for additional work, example, need for will redraft when client gets married.

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b. Develop personality traits and work habits that are highly valued by clientsi. Friendly vs. Impersonality

A. Be able to immediately recall the client’s name.B. Add personal note to the end of the client’s bill.C. Send them a Christmas card.D. Inquire about past projects.

ii. Businesslike Attitude vs. IndifferenceA. Discuss fees at the end of the first interview before the client

asks, like the rest of the commercial world.B. Present a detailed outline of the work to be done, including

estimated time tables.C. Have sufficient support staff and technology.D. Send the bill when/how often you say you will.

iii. Courtesy vs. Rude and BrusqueA. Return phone calls immediately.B. Do not discuss other cases in front of the client.

iv. Avoid Condescension and Superior AttitudesA. Explain legal terms.B. Do not assume that legal concepts are too difficult for the client

to understand.C. Thank the client for his business.

v. Keep the Client InformedA. Send copiesB. Notify client of changes or delays in appointments and court

dates.c. Develop good public image, attorney contribution to society.

i. Establish good relationships with individual clientsii. Bar associationsiii. Understand Lawyer’s Contributory Role

A. Ex. Foreclosure on property contributes to making capital available for other investors.

3. Negotiation:a. Firm/fair offerb. Concealment of Settlement Pointc. Induce opponent to start bargaining, start with unreasonable first offer

i. Ask “what will it take to settle this case?” An experienced negotiator will make an unreasonably high or low first offer in response to this question.

d. Appearance of irrationality: other party might understand that they have to make greater concessions than he would against a rational opponent. Analogous to confronting a hungry tiger, no negotiation can take place.

e. Blame the clientf. Using a Mediator: useful to defeat the negotiating techniques, used when one

opponent is very irrational.g. Appeals to the Merits: the negotiator will express unshakeable conviction that his

client would prevail on the merits if tried. This is used to validate an unrealistically high offer.

h. Throwing oneself at the opponent’s mercy: Little or no bargaining strength, “please don’t take advantage of your superior position.”

i. Inducing the opponent to bargain against himself: “your offer is not even in the ballpark, come up with something more realistic and then we will talk.”

j. Forcing two opponents to bargain against each other: Multiple parties, “if you don’t settle the case for $X, then I will settle with the other ∆ and he will testify against you.”

k. Ganging Up: Similar to above.

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l. Flattery: “you are too good a lawyer to be handling this type of case.” It is easier for a person to make concessions if he can do so in an atmosphere of dignity and in the belief that he is respected by his peers.

m. Timing: One side or the other usually can afford to wait. Also, can wait after confrontational negotiations to begin again. Also, if one party is about to begin depositions, etc. that will be very expensive, they might want to settle and would make more concessions than normal.

n. Activity: Aggressive movement towards trial might induce settlement to avoid trial.

o. Collateral Consequences to the Opponent: Make any alternate to settlement unpleasant or very expensive. Discovery is very costly, can file multiple suits in different forums, etc.

p. Deadlines and “Locking In”: If you wait until discovery is finished, my settlement offer is reduced by $10K.”

q. Focal Point Solution: split the difference between what one party is willing to pay and what the other party is willing to settle for.

r. Drafting the Agreement: draft minor unsettled points in your clients favor. Opponent might not notice or might consider objection too small.

s. Control of the Agenda: the person who sets the order of discussion usually has the advantage because concessions come more easily at the beginning of the negotiation process than at the end.

t. The Bargaining Chip or False Demand: One may ask for something they don’t really want so that he appears to give up something in exchange for something he really wants.

u. Reverse Psychologyv. Physical Factors: negotiating on familiar ground, among familiar people, and

under familiar conditions gives one party a psychological edge.w. Direct Involvement of the Principle: x. Making the opponent feel he has negotiated capablyy. The test of strength, total or partial: willingness to go to trial is part of the arsenal

of the skillful negotiator.4. Lawyer Dissatisfaction

a. With opposing counsel who are dumb, pushy, or sneakyb. With judges, abusive, prejudices, rushed because of their docket...c. With clients who are uncooperative, unappreciative, unrealistic expectationsd. Adversary system, constant stresse. Injustice and oppressionf. Lack of personal time, unrsbly high hours to be billed, no time to run personal

errands. Billable hours vs. actual hours spent in the office?g. Law school does not teach any lawyering skills, does not correspond to daily

tasks for lawyers, such as drafting a K.h. Too many lawyers, difficulty in finding good jobi. Life is governed by billable hours, six-minute increments. Difficult to reconstruct

the day if meticulous records are not kept.j. Deadlines, court dates, statutes of limitations, rules of procedure, etc. Lawyers

have many tasks and projects going on at once, lawyer must spend time managing calendar systems. Constant fear of missing a deadline or a statute of limitation resulting in no relief for the client.

k. Cancellations, unexpected events, must adjust quickly because life revolves around efficient time usage, billable hours, and deadlines. Must be flexible and very efficient.

l. The Rambo litigator: abusive to your clients, sets important depositions but does not show up saying he sent notice, must have been lost, etc.

m. (inevitable) Losing the case, public trials, fault of the lawyer? n. Ethical? lying and deception but falling within technicalities of rules or ambiguous

questions.

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o. Clients thinking fee is too high. Solution: bill monthly, do not let the client get ahead.

p. Clients resisting to settle, negotiate even though their case is weak, they just don’t know it.

q. Costs of litigation, office management requirementsr. Stress: all of works small hassles that add up.s. Substance abuse: do not do this to relieve stress. Abuse is more prevalent

among lawyers.t. Lack of Significance in one’s work

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